Monday, April 28, 2008

Who needs Liechtenstein or the isle of Jersey? We've got a lovely tax haven right in this hemisphere

In 2005 Alexandre and Aude de Beaulieu, Parisians in commodities trading and public relations, picked up stakes and flew to the Republic of Panama. For $60,000 they bought, renovated and equipped a shop in Casco Viejo, a decrepit Panama City neighborhood that was filled with squatters but so architecturally unique it is a Unesco World Heritage site. Their business: gourmet ice cream, with flavors like cinnamon and basil.

"Everyone told us we were crazy," says Alexandre. By which they meant that the entrepreneurs should set up shop closer to home. But France's thicket of taxes, regulations and restrictions on hiring and firing workers scared them away. "Panama is like California 20 years ago. Everyone I know is building something--a newspaper, a development. It's very uplifting."

The De Beaulieus' ice cream parlor, called Granclément, furnished with family heirlooms and antique scoopers, has got glowing writeups in the Financial Times and numerous local papers. When FORBES visited the shop in February, a European film crew was shooting Granclément for a travelogue to be aired on KLM flights. Down the cobblestone lane construction workers were restoring a crumbling palace as a five-star hotel, while the latest James Bond flick was being filmed in a nearby square.

Granclément is busy enough to generate maybe $150,000 a year in revenue, a good take in a country where shop clerks earn $4,000 in salary and benefits. So these 36-year-old self-starters and their four young children are on their way to becoming wealthy. This year the De Beaulieus will add supermarket distribution and a shop among the Miami-style high-rises and malls getting built in the modern banking quarter across the bay....

America's recent exit was in some ways the real birth of Panama. This lively backwater--famous mostly for flying maritime flags of convenience and hosting dodgy finance--seems to have found its voice. Democratically elected governments have clamped down (somewhat) on corruption, signed several free trade agreements (the U.S. Congress has yet to ratify a 2007 deal with Panama) and instituted tax and social reforms.Meantime, even as the U.S. pulled up its drawbridge to many foreigners after the Sept. 11 attacks, its dollar was the standard for Panama, which (until lately, at least) has found the currency bulwark an additional attraction for some of those same itinerants.Result: Panama's GDP has been compounding at 7% these last five years. "Something's happened," says Joseph Harari, director of Panama's Credicorp (nyse: BAP - news - people ) Bank and an executive board member at the Wharton School in Philadelphia. "We've always had very liberal tax laws. But we also use the U.S. dollar to run our economy. It all helped."

Panama's corporate tax rate is 30% and is levied on local income only. The U.S.' 35% federal corporate tax burden is, in contrast, the second highest in the world and is applied to global income. Caterpillar (nyse: CAT - news - people ), Procter & Gamble (nyse: PG - news - people ) and Hewlett-Packard (nyse: HPQ - news - people ) have all recently announced significant investments in Panama. The personal income tax, capped at 27%, is also limited; the De Beaulieus, for example, don't pay Panamanian taxes on their French investments, which face high levies at home.

Between the glass towers of HSBC and BNP Paribas, South Beach-quality apartment complexes emerge from every weed-choked lot, turning Panama City's skyline into a porcupine of cranes. New developments are granted tax holidays for 10 to 20 years. On the seaside Avenue Balboa, famed interior designer Philippe Starck is filling a 56-floor tower; Panamanian and Colombian partners have teamed up with Donald Trump to build the 68-story Trump Ocean Club International Hotel & Tower, financed by a $220 million bond offering.According to one report 35 towers of over 20 floors are in construction. Besides the danger of overbuilding, there are stress signs of too-rapid growth: brownouts from an overtaxed electricity grid, a Third World sewage system under the First World high-rises. Filth is still pumped into the bay. The government says it is working on sewerage improvements.Of course, the newly arriving affluent also want high culture and good health care. Frank O. Gehry is designing Panama's museum of biodiversity; Hospital Punta Pacifica is the recently opened affiliate of Johns Hopkins Medicine International.The old Howard U.S. Air Force Base is a 20-minute drive from downtown Panama City. Dotted with ugly barracks, this 3,500-acre property is still oddly elegant, with rolling lawns and hills, reminiscent of an African savanna, interspersed with flowering rain forest. Europe's London & Regional Properties, with partners, recently won the contract for Howard.The plan, says Dan R. Marcus, an American developer who just arrived to run the project, is to build 12 million square feet of commercial space alongside 20,000 housing units, all woven together in a "holistic way." Houses will be integrated into the lush forest; on hand, everything from fire stations to chic restaurants. A free trade zone grants Howard-based firms generous VAT to income tax breaks.Backstopping all this glamour and hype are the canal and related ports. Some 14,000 ships a year make their way through the 50-mile link, paying a fee of up to $313,000. In 2006 Panamanians voted to build an additional set of locks, for $5.3 billion, that in 2014 will double capacity and finally allow modern and much larger container ships to pass through....

Abraham Suchar is a 38-year-old Venezuelan who migrated to the U.S. and made good money in the Los Angeles construction boom of the late 1990s before hitting up against the real estate bust in Florida these last couple of years. Meanwhile, his childhood friend Roberto Molko, who married into a prominent Panamanian family, was down in Central America making a killing flipping apartments.

"Florida is now famous among Latin Americans for little fortunes. You come with a big fortune, and you leave with a little one," says Suchar.

So Suchar has joined his old friend in Panama, building office space. "With all the issues happening in the U.S., I have more of a chance to make a living here," he says. "And the quality of life is much better.

"Two maids and a driver in Panama cost you $1,000 a month," he added. His Danish wife and their daughters have yet to be convinced.

But January was Suchar's first month in Panama full time, and in that month the partners presold $17 million worth of real estate to Venezuelans fleeing Hugo Chávez socialism. Panama has low crime, says Molko; its clients are escaping the "kidnapping, robberies and assaults" routine back home.

The U.S. is losing out, too. Sandra Snyder, an American who has written the hot-selling starter's guide Living in Panama (TanToes SA, 2007), says Sept. 11 has been the excuse for the U.S. government to soak foreigners for $130 to consider a visa application. "Imagine what that means to a middle-class family, with four kids, wanting to take a shopping trip to the U.S. or visit Disney," she says.

So Latin America's arrivistes are bypassing the U.S. and heading instead to balmy Panama, where $5 and a 30-second visa form gets you waved into a country in which nearly all the top boutique brands are waiting for you in the marble-filled MultiPlaza Pacific Mall.

Developers press ahead in Panama City

PANAMA CITY, Panama:Showing a guest around his renovated apartment in Casco Viejo, this city's old district, the film director Luis Palomo shook his head over the sea of residential towers being built across Panama Bay.

"Are there really that many people who want to live here?" he asked.

It is a common question in Panama City these days. More than 35 towers, each of 20 stories or more, are under construction. Another 350 are in the planning stages, representing more than 40,000 units, according to local government estimates.

Fears that the market may be overheating were stoked last year by the abrupt cancellation of three of the largest announced projects, including the 104-story Ice Tower, which was to be the tallest development in the city.

"Right now, I believe the majority of the market is speculation," said Sam Taliaferro, a developer and consultant who writes the widely read Panama Investor Blog.

To José Manuel Bern of Empresas Bern, a local developer, the cancellations were a necessary "sobering up" for the market.

"We weren't ready for that," Bern said. "There is a ceiling for everybody. We're not Miami."

But some promoters are already calling Panama City the "Miami of Central America." Developers see Panama as a stable country, with an economy growing at a steady rate of 8 to 10 percent a year. Most Panamanians speak at least a little English and the U.S. dollar is the accepted currency.

"Panama is one of the safest countries in the world," said Julio Fernando Noval García, president of Spanish developer Grupo Mall, which is building Los Faros de Panama, a three-tower, mixed-use residential complex in the heart of the city.

Grupo Mall is not alone. Foreign investment in Panama grew almost 20 percent in the first six months of 2007, compared with the same period in 2006, according to government statistics. Construction activity increased by 17 percent, the data shows.

Developers are hoping a $5.25 billion plan moving forward to expand the Panama Canal will generate new buyers for the city's residential market. In addition, corporations like the computer maker Hewlett Packard and the construction equipment giant Caterpillar are moving their regional headquarters to the city.

Panama City also is increasingly popular with second-home buyers and retirees, like Frank and Maria Harrison of Chicago. Two years ago they abandoned plans to retire in Florida and bought a 4,500-square-foot, or 420-square-meter, condominium on the 11th floor of a waterfront tower.

"We really like city life," Frank Harrison said, adding that Panama's hurricane-free weather was another key factor in their decision.

But North Americans are only part of the equation. Venezuelans make up 60 percent of Empresas Bern's customers for residential towers in Costa del Este, a master-planned development being built on 300 hectares, or 740 acres, a few minutes outside the city center, Bern says.

Despite the much discussed concerns about overbuilding, the Panama-based developer Grupo Corcione is moving ahead with five tower projects in the city, including Ocean Sky, a 45-story tower with 106 units priced at $268,000 and $750,000.

Construction began in January 2007 and is expected to be completed by March 2009.

"We don't see a slowdown," said Ben Robinson, a consultant to Grupo Corcione. "There will always be speculators, but the long term prospects are very good."

In November, Newland International Properties sold $220 million in bonds to finance construction of the Trump Ocean Club, one of the most closely watched projects in the city. Scheduled for completion in 2010, the 69-story project, which is licensing the Trump name, will include more than 600 luxury residential condominiums priced from $500,000 to $12 million.

The Trump project is widely credited with boosting prices around the city. In the last two years, the average price for tower apartments has jumped from about $1,500 a square meter to $3,000 a square meter, or about $140 a square foot to $280 a square foot, in some projects, local experts say.

"It was as if the Donald Trump project lit dynamite under prices," said Paul McBride, chief executive of Prima Panama, Taliaferro's company.

Along with prices, complaints against developers have soared. More than 150 charges have been filed with the local consumer protection agency, according to Bill Schroff, a local consultant who runs a company called Panama Referral.

Two years ago, Schroff bought a tower apartment in the preconstruction phase, putting a 20 percent deposit on a unit priced at $157,000. Now that prices have soared, the developers are trying to get out of the contract.

"That happens a lot," Schroff said. The developer offered him $220,000 but he declined; similar units are now selling for $280,000.

Thursday, April 17, 2008

SLAM Panama will be an exhibitor during the "Escapes! Second Home Expo" set for Houston Apr. 19 and 20.

Organizers say Texas is the "new hot spot for retirement, according to a recent study using U.S. Census data." Texas has now "leapt past Arizona and California to become the No. 2 retirement spot in the US. "Florida is still No. 1, but Texas is gaining." Spokesman Tony Wood suggests buyers from the greater Houston area, where the energy-driven economy is thriving, are in a better position than most to invest in a vacation home these days. The market for SECOND HOMES has never been HOTTER!

10 million baby boomers will have second homes by 2010.

57% of homeowners age 55-64 will purchase a second home within 5 years.

27% of wealthy Americans own a second home, 17% intend to purchase.

The 200 exhibitors who will take part in the show at The Woodlands Waterway Marriott Hotel and Convention Center represent not just Texas destinations but Mexico, Costa Rica and Panama, all reachable by nonstop flights from Houston. More info at : http://www.escapesexpo.com/whygototheexpo.asp or email properties @slampanama.com

Pre-purchased tickets are $10 online at EscapesExpo.com; $12 at the door. Ticket admits one adult for one day of the Expo. Two-day passes available. For detailed information on seminar times, a list of exhibitors, hotel accommodations and area attractions, visit EscapesExpo.com.

Thursday, April 3, 2008

The National Bank of Panama is the equivalent ofa central bank that does not issue currency. Italso lends money to property buyers on a regularbasis and has a portfolio of repossessed properties.

This April 15, 2008, the bank will be holding anauction of properties located in Panama City,Santiago, Changuinola, Coclé and Chiriquíprovince. While most of the properties are notthe usual "choice" homes offered to foreignbuyers, some have potential for eventual rentalto the local market or for developing tourismprojects. Among the properties being auctioned are:

Bidders must provide a refundable check for 5%of the price they are willing to pay. Theofferor of the highest bid must pay in cash orhave secured financing in order to be awarded theproperty. Each property is sold "as is" to bothforeign and local bidders alike. The last dayto receive offers is April 15, 2008 at 2PM.

For more information on how to bid for theseproperties, email properties @slampanama.com

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Street Level Asset Management (SLAM) provides management, leasing and other services for investors with real estate in Panama and other countries.For more information on how to get better returns from your properties abroad, contact Street Level Asset Management (Panama), S. de R.L.